fhe Study of Business, So 39 xonIMobil is the largest publicly traded international oil company. Although itis “headquartered in Irving, Texas, and most people regard it as an American company, 69 percent of its sales, which were $366 billion in 2006, are in more than 200 other countries! its main business is discovering, producing, and seling oil and natural gas, and it has a long record of profiting more at this business than its rivals. ExconMobil cannot be well understood apart from its history. It descends from the Standard Oil Trust, incorporated in 1882 by John D. Rockefeller as Standard Oil of New Jersey. Rockefeller was a brilliant strategist and organizer who crushed competitors He believed that the end of imposing order on a youthful, rowdy oil industry justified the use of ruthless means. As Standard Oil grew, Rockefellers values defined the company’s culture; that is, the shared assumptions, both spoken and unspoken, that animate its employees. Ifthe values of a founder such as Rockefeller are effective, they become embedded over time in the organization. Once widely shared, they tend to be exceptionally long-lived and stable Rockefeller emphasized cost control, efficiency, centralized organization, and suppression of competitors. And no set of principles was ever more triumphant. Standard Oil once had more than 90 percent of ‘the American oil market. Standard Oi's power so offended public values that in 1890 Congress passed the Sherman Antitrust Act to outlaw its monopoly. In 1911, after years of legal battles, the ‘rust was finally broken into 39 separate companies. After the breakup, Standard Gil of "New Jersey continued to exist. Although it had shed 57 percent of its assets to create the new firms, it was stil the worlds largest oil company. Some companies formed in the iety Mobil Corporation "Figures inthis paragraph are from Exxon Mobil Corporation, Form 10-K 2006, filed with the Secures {and Exchange Commission, February 28, 2007 2 Sec, for example, Edgar H. Schein, The Corporate Culture Survival Guide (San Franco: Josey Bas, 1996), part one.Le 11 The Study of Business, Government, and Society breokup were Standard Ol of indiana (which was late renamed Armoco), Atlantic Ref ing (ARCO), Standard Gi of California (Chevron), Continental Oil (Conoco), Stand Ot rahi (Gohio), Chesebrough-Ponds (a company that made petroleum jelly, and Stand Sd Ol of New York (Mobil). In 1972 Standard Oil of New Jersey changed its name to oxcon, and in 1999 it merged with Mobil, to form ExxonMobil Rockefellers influence is buried in the passage of time, but ExxonMobils actions remain consistent with his nature. It has a centralized and authoritarian culture, Cost Control, capital productivity, and strict financial controls are emphasized in opera~ tons, Profits an overriding goal, and projects must meet strict criteria for return on ieetment. Unlike Southwest Airlines or Google, where having fun is part ofthe job, performance pressute at BetonMbil is 0 intense that it “isnot a fun place to work 3 Qver many years it has consistently bettered industry rivals in is favorite measure, Return on average capital employed, just ike the old Standard Oil Trust. And com petitors stl find ferocious adversary. The company says simply that it “employs a | Frethods of competition which are lawful and appropriate."* TaxonMobilis a massive organizational force, shaping international markets, Push- ing against competitors, and influencing governments, However, today it 45 0 2 i ve aifficult environment than did Rockefellers dominating trust. Asin the old days, Mie power fs contested and limited by the interplay of economic, political, and socal forces. Only now those forces are mote leveling, Niackets are more contested. ExxonMobil pumps only & percent of the worlds daily output of oil and controls less than 1 percent of petroleum reserves, These figures afé far lower than in the 1950s when Exxon was the largest of the Seven Sisters, 8 group Gf Wester oil firms that dorninated worldwide production and reserves, including the huge Middle East ol fields Now its largest competitors are seven state-owned i companies, often called the “new Seven Sites,” whose output dwarfs that of yesteryear’ titans The biggest, Saudi Aramco, i 3.5 times the size of BeronMobI In daily output and has 32 percent of world reserves.” he rge of these state-owned cil companies reflects a new resource nationalism in developing rations that want to recapture ol profits from foreign firms. Climbing crude ‘il prices since the late 1990s have made oll reserves more valuable, leading many Countries to take over oilfields. This happened to ExxonMobil in Venezuela. I lost 2 percent of dally production in 2007 when the government seized projects valued at $4.5 billion. ® BoconMobilis on a treadmill, constantly searching for new oil and natural gas sup- plies to compensate for declining production in existing fields, Output from @ mature 2 adel Gheit a former employee and leading ol industry anahst, quoted in Geoff Colvin, “The Defant ‘One," Fortune, Api 30, 2007, p88 + See, fr example, xan Mabil Corporation, Form 10-K 2006, p 2 he Seven Sisters were Bxxon, Mobi, Shell, rts Petroleum, Gui, Texaco, and Chevron, “these new "seven sisters” are Saudi Aramco (Saudi Arabia), Gazprom (Russa), Chine National etokeur: ‘Company (China, National arian Oi Company (ren), Pe-lens de Venezuela S.A, (enezve Peuobras (Bazi, and Petronas (Malaysia) * Government Accountability Office, Crude Gl, GAO-07-283, February 2007. fig. 8 «Cis Kreu, “Exon, Conaco Drop Venezuela il Projects,” Los Angeles Times, June 27, 2007, p. C3.Chapter 1. The Study of Business, Government, and Society. 3 field drops 5 to 8 percent a year. To maintain profitability the company pursues new reserves wherever they are located, taking politcal risks and abiding unrest and cor. ruption. in iran and Venezuela ExconMobil’s assets were appropriated. In Chad, Angola, Nigeria, and Equatorial Guinea, it paid dictators for access to oil. Indonesian troops uard its facilites against attacks by rebel forces.® Governments are more powerful and relations with them more complex than in the past. ExxonMobil's operations are restricted by the laws and regulations of each country in which it does business. n the United States alone approximately 200 federal agencies and bureaus impose rules and standards on the company. Only a handful of these existed in Rockefeller's day. In foreign countries ExxonMobil faces import and ‘export restrictions, production taxes, price controls, and regulations to protect nature In 2006 it supported governments by paying $101 billion in taxes worldwide, a sum ‘exceeding the combined revenues of Dell and Microsoft. EoconMobil also faces a demanding social environment. As 2 leader in the world's, largest industry, itis closely watched by environmental, civil rights, labor, and con- sumer groups—some of which are actively hostile. For years the company has 2g) tated environmentalists by rejecting the scientific case for global warming, Alone ‘among major oil companies, it refuses to make significant investments in renewable energy sources such as ethanol, solar, wind, of tidal. A former CEO called such invest- ments "a complete waste of money.""® Energy from renewables is more expensive to produce than energy from cil, gas, and coal, which will be the dominant sources of ‘energy far into the future. Therefore, ExxonMobil shuns renewables, which lack promise of satisfying its lofty return on capital standards. oxonMobil got @ good public caning because for years it funded the research of groups that denied global warming. In 2006 Britain’ scientific academy, the Royal Society, took the unprecedented step of writing to the company’s management, ask- ing that it stop "misinforming the public” Then two senators, Olympia Snowe (R-ME) and John Rockefeller IV (D-WWV), the great grandson of the company’s founder, sent a letter to the CEO and members of its board of directors. They asked that ExxonMobil end its ‘climate change denial strategy” because it was adversely affect- ing the credibility of the United States in the international community"? Such pressure led CEO Rex Tillerson to grant publicly that the world is warming. But he did not make any notable strategic changes.? His. reversal of belief failed to satisfy critics, especially ExposeExon, a coalition of environmental groups that ‘opposes the company's policies. The coalition includes Defenders of Wildlife, * the company faces murder charges brought by villagers who claim it was complicit when government ‘woop attacked area natives sympathetic ta the rebels. See Doe v Exxon Mobil Cor, 473 F3d 345 (2007) "Pee Raymond, quoted in “The Urepentant Oilman,” The Economist, March 15, 2008, p. 64 "David Adam, “Scientists Attack Climate Change Denia,” The Guaraian Weeks, September 29, 2006, p14 2 Quoted in Steven Mufson, “At Exon Meeting a Storm Outside but Calm Within,” Washington Post, May 31, 2007, p02 "etre Ball, “Exon Softens Clmate-Change Stance,” The Wall Steet Journal, Januaty 11,2007, . A214. Chapter The Study of Business, Government, and Society Greenpeace, the Natural Resources Defense Council, the Sierra Club, and the Union of Concerned Scientists. This league of greens continues to hound the oil giant, Its banner outside the firm's 2007 shareholder's meeting read “No Planet, No Dividends." ‘as 2 corporate citizen ExxonMobil funds worldwide programs to benefit educa- tion, communities, health, nature, and the arts. Its largest contributions, about 35 percent of the total, go to higher education. Other projects range from a $13 mit: fion campaign to save the world’ tigers from extinction, an appropriate project since the tiger is the company's brand symbol, to sponsorship of free poetry readings in Singapore, where the company owns a chemical plant. in 2006 ExxonMobil gave $139 million to such efforts, Ths isa large sum from the perspective of an individual However, for ExconMobil it was one-twenty-sixth of 1 percent of its $366 billion rev- enues, the equivalent of a person making $1,000,000 a year giving $385 to charity Does this giving live up to the elegant example of founder John D. Rockefeller, the ‘great philanthropist of his era? “The story of ExxonMobil raises central questions about the role of business in society. When is a corporation socially responsible? How can managers know their responsibilities? What actions are ethical or unethical? How responsive must 2 cor” poration be to its critics? This book is a journey into the criteria for answering such Questions. As 2 beginning for ths frst chapter, however, the story illustrates. a fange of interactions between one large corporation and many nations and social forces. Such business-government-society interactions are innumerable and com- plicated. n the chapter that follows we try to order the universe of these interac- tions by introducing four basic models of the business-government society relationship. In addition, we define basic terms and explain our approach to the subject matter. WHAT IS THE BUSINESS-GOVERNMENT-SOCIETY FIELD? In the universe of human endeavor, we can distinguish subdivisions of economic, politcal, and social activity—that is, business, government, and society-—in every Pilization throughout time. Interplay among these activities creates an environ- business, mantin which businesses operate. The business-government-society (BGS) field smog da’ isthe study of this environment ‘and its importance for managers. Seiulaprod- To begin, we define the basic terms. provides prec usiness isa broad term encompassing a range of actions and institutions. Tt covers (cutwsatify management, manufacturing, finance, trade, service, investment, and other activities human needs. Fnities as different as a hamburger stand and a giant corporation are businesses, The government fundamental purpose of very business io make profity providing products and ‘frncruresand services that satisfy human needs. sin ‘Government refers to structures and processes in society that authoritatively seciety thal make and apply policies and rules. Like business, it encompasses a wide range of authortavely activities and institutions at many levels, from international to local, The focus of maken es this book ison the economic and regulatory powers of government as they afect ant rules. business.